Caravan Park Commercial Loan

Banks see caravan parks as specialised properties so borrowing at the highest Loan to Value Ratio (LVR) with a competitive interest rate depends on how you present your case.

How does a caravan park commercial loan work?

In your application, the bank will be weighing up the strengths and weaknesses of the property security (the holiday park) and your situation (both financial and the experience you have under your belt).

How much can I borrow?

• Freehold (the land and property): Borrow up to 50% of the property value. You can borrow 100% with the help of a guarantor.
• Leasehold (the business): Borrow up to 35% of the business value (going concern).
• Interest only: 3 years.
• A business plan with cash flow forecasting will need to be presented (with the help of an accountant).
• Low doc options not available and you’ll need to be in a good financial position.
• Interest rate discounts may be available depending on your situation.

Caravan and holiday parks are seen as specialised security meaning they are purpose-built and will attract a specific type of buyer.

This is a high risk should the bank ever need to sell the property in the event you default on the caravan park commercial loan.

Lenders are even more conservative if you’re just buying business: LVRs will be reduced and you’ll require adequate equity in a residential property or cash to complete the purchase.

Do you need a caravan park commercial loan?

Call us on 1300 889 743 or complete our free assessment form and discover how we can help you get approved!

Not all lenders are the same and we’ll help you choose a lender that takes a common sense approach.

How will the banks assess my situation?

Apart from some basic financial evidence like payslips and your latest group certificate, you’ll also need to provide evidence of at least 3 years in a managerial position of a similar-sized holiday park or hospitality business and how you managed a viable enterprise.

For the new business you plan to run though, the bank will ask for a business plan drafted with help of your accountant showing revenue, cash flow forecast and capital requirements.

It should include any repairs that need to be undertaken to the buildings, plant and equipment on site for the next 5 years. You’ll also need to provide a market analysis and competitor report for the location of holiday park.

The cash flow budget itself should clearly estimate occupancy rates during peak and off-peak periods and how much revenue you expect to generate through the 12 months.

Ultimately though, a caravan park commercial loan application is assessed on a case by case basis so get in touch with us and we can do a proper assessment.

How will the caravan park be valued?

Although this will be assessed on a case by case basis, the bank will generally want to see a business that has:

• Recurring net operating revenue or earnings before interest, tax, depreciation and amortisation (EBITDA).
• Whether the returns are increasing, decreasing or remaining relatively constant from year to year.
• Interest cover: 2.0x
• Debt service cover: 1.0x
• An occupancy rate above 60% although this will vary depending on the location of the holiday park.
• If you’re buying the leasehold, the lender will want to see that there is at least 5 years left on the lease with options to renew i.e. 5x5x5.
• Similarly, with a freehold arrangement, the banks want to see that you have a financially strong, long term tenant in place.

Bear in mind that although holiday parks generate revenue on a seasonal basis, banks generally won’t take the same approach.

They simply want to see that revenue has been increasing year on year (certainly not decreasing).

In order to assess a caravan park commercial loan on its merits, the lender may also run what is known as a SWOT analysis (strengths, weaknesses, opportunities and threats) of the business.

An example of a caravan park SWOT analysis may be:

• Strengths: You have experience in running a caravan park of a similar size and the caravan park is located in walking distance of the beach.
• Weaknesses: The park needs a lot of repair to bring it up to operating standards.
• Opportunities: The vendor is only selling the caravan park because they’re reaching retirement.
• Threats: You’ve found out from the local council that approval has been given to develop a site near your location and could present a possible competition threat. Alternatively, it may be that council has plans to rezone the area in a couple of years time, putting you out of business.

Valuations usually take between 2-3 weeks but we can likely speed up this process so you can get pre-approval faster and avoid missing out on a fantastic opportunity.

The trick to getting a strong valuation and borrowing the amount you need means choosing a lender that actually understands the holiday park and accommodation industry.

We know of a few banks that have specialist credit assessors for these sectors so they take a common sense approach when valuing the caravan park you’ve found.

Why speak to our brokers?

The reason our specialist mortgage brokers are able to speak to the decision makers in commercial at major banks and lenders is that we’re commercial loan specialists.

What does that mean?

Well, firstly we have strong relationships with almost 40 lenders including banks and specialist non-banks.

On top of that, our mortgage brokers have many years of experience in credit, many of them having previously worked as a decision maker on commercial loan applications.

Because of this, we know exactly what the banks are looking for in an application so you have the best chance of getting approved the first time around.

It also puts us in a strong position to negotiate the terms of the caravan park commercial loan, including allowing you to borrow more than usual and getting access to reduced commercial interest rates.

Get in touch with one of our caravan park commercial loan specialists today by calling 1300 889 743 or complete our free assessment form.

Tips for buying a holiday park

The caravan, camping and holiday park sector has changed a lot over the past decade, offering more than simply a few acres of land with a concrete slab and a power socket to power up your RV or caravan.

They still have these options but nowadays, caravan parks are more tailored to families, with improved accommodation and facilities and much more activity and entertainment options.

In order to compete with other budget accommodation providers, such as motels and backpacker accommodation, caravan parks now offer modest to luxury cabins and villas as well.

Continue reading for tips on buying a holiday park.

What should I look for in the freehold?

Generally speaking, the long-term returns of owning a freehold holiday park are generally greater than simply buying the leasehold on its own.

You can also get a caravan park commercial loan at a higher LVR if you’re buying a freehold going concern because the bank has a physical piece of land that they take as security rather than fluctuating nature of a business valuation.

If you’re looking to simply purchase the freehold as an investment, there are a few things you’ll want to make sure of.

Firstly, it’s important to ask why the vendor is selling the property in the first place.

If they’ve owned it for a few years, it’s possible that they’re just looking to make a profit.

However, if it’s been on the market for a while, it may be a red-flag that the current tenants are planning to jump ship in the near future.

This could leave you without a tenant.

One of the first things you have to consider is the strength of current lease:

• There should be at least 5 years left on the lease with options to renew or otherwise a strong indication that the caravan park operators plan to remain in the same location for the foreseeable future.
• As part of this due diligence, consider the financial stability of the current tenants: ask for their last 3 years business financials and go over them with your accountant.

With the site, consider the land itself and whether there is potential to redevelop in the future.

Caravan parks can range from 10-30 acres or more so there could be opportunity to sell to a developer down the track if you’ve done your research and can see that the area is becoming an emerging suburb with other industries besides tourism.

You’ll find that some holiday parks come with areas that are undeveloped which gives the opportunity to expand the park.

On that note, it’s important to check with the local council that a) the holiday park is currently meeting environmental health obligations and b) that zoning isn’t expected to change in the near future.

Vendors after a quick deal may not be open about this information so it’s often best to go into the buying process with a business broker that specialises in holiday accommodation.

It’s good to have a professional on your side when it comes to buying commercial property.

In terms of the land and property itself, get an environmental report to check for any signs of contamination and organise of for an independent valuation of the buildings on the site.

Are the structures and infrastructure like plumbing, electricity and gas up to scratch?

In particular, check for leaking in underground water pipes. This can cost you thousands of dollars every year in wasted water, not to mention causing the ground to become wet and muddy.

You may want to make it a requirement of the sale that the property be in working order before the sale proceeds.

In addition, it gives you an opportunity to negotiate on price. All this can be made easier and safeguard the transaction with a specialist solicitor.

What to look for in a business

Consider the following and see how they measure up to industry benchmarks:

• Average net operating revenue of the past 3 years (EBITDA)
• Occupancy levels: An occupancy rate above 60% is better than the national average but this benchmark changes frequently and will vary dependent on location. Levels under 50% are considered to be an underperforming business but it does present you with an opportunity to turn the park around or redevelop the site to be more family friendly, for instance. That’s why it’s essential that you undertake a market report to identify exactly who your target market is.
• Ratio of annual site holders to other guests: Annual site holders are guests that have an annual site agreement in place and have paid for a villa, cabin or caravan spot for the year. These are highly valuable repeat customers so you should be mindful of how you mitigate the risk of leakage as you come on as the new owner.
• Rent to accommodation turnover ratio: 22-25% was previously seen as a good benchmark but you should check with your state caravan and camping association for benchmarking. If there is a high rent ratio, it may not necessarily mean that the rent being charged is too high. It could be that the turnover is too low, presenting an opportunity for you to turn things around.

Doing your due diligence

The following aren’t benchmarks but they should form part of any due diligence undertaking:

• Location: Clearly, the park will be well located to a local attraction like a theme park or a natural attraction like a beach but it’s important you clearly understand the competition in the area. How does your caravan park standout or how can you improve the business to attract more guests? You may want to consider whether you target a different and growing demographic in the area that the competitors aren’t targeting such as young couples.
• Facilities: Do the available facilities attract the type of clientele that will generate revenue for the holiday park? Some of these facilities and activities may include jumping pillows, playgrounds, movie nights, pool and spas, basketball and tennis courts and games rooms. Depending on your market study, you consider building luxury cabins and villas to appeal to high net worth clients.
• Engineering and pest report: This is essential when determining the condition of the facilities and identifying any short-term or long-term problems that may arise. This could be anything from bad wiring, the need for more extensive plumbing to service the current guest capacity. Pests can also be a massive issue with accommodation businesses and left unattended can wreak havoc on your business very quickly, not to mention quickly ruin your reputation.
• Check with council: If you’re planning to undertake any development or fit-out work, you need to get approval from the local council. Minor renovations won’t generally require approval but it’s always good to check because, at worst, you could be shutdown before you even begin operating. Even if you aren’t, it’s worth checking with the Environment Health Office that the park is currently to code and that it is operating as per the zoning requirements set out by council.
• Lease term: Banks like long lease terms and so should you. A lease term of between 20-30 years gives you a good amount of time to build the business, generate a good return on investment and pay off the caravan park commercial loan. Anything less than 10 years owing on the lease is seen as a high risk from the bank’s perspective and is also a high risk from a business sense.
• Lease agreement: With the assistance of a commercial solicitor, read over the lease agreement carefully to determine your rights as a tenant in particular what outgoings you are liable for in the upkeep and maintenance of the holiday park including electrical and plumbing works. It’s crucial to understand this when it comes to accommodation ventures purely because of the sheer number of people reside in the premises over any given calendar year.

There are much more extensive checks that you should undertake before even applying for a caravan park commercial loan but it’s essential you get proper legal and financial advice.

A specialist accountant and valuer can walk through the property with you and provide a thorough report on the value of the business and where to be concerned.

It may be that you turn down the business completely or, at the very least, negotiate on the asking price.

You may want to make it a condition of sale that repairs or actions be undertaken before proceeding with the sale.

The contract of sale

The most important question to ask before you proceed with the sale is have you got what you paid for?

It’s a simple enough question that is often overlooked by the first-time buyers in the caravan industry.

Undertake due diligence and have it all in writing in the contract of sale.

Specifically, the contract of sale should detail:

• A list of equipment/fixtures/fittings included in the purchase.
• Guest capacity limits.
• A list of suppliers.
• Copy of all current contracts (these contracts can range from gardening and lawn maintenance to electrical work and cleaning).
• Copy of large-scale repair and renovation history (you should ensure there are warranties for these repairs and that they were undertaken to council code).
• Proof that the number of parking bays complies with the zoning requirement.

This is not a detailed list so, again, it’s essential you get legal and financial advice.

Guidance on running the business

If you’re buying the caravan park as a freehold going concern or an owner occupier, it’s important to understand that the upfront capital investment tends to be higher in the holiday park industry than a number of businesses.

It’s something you should factor into your capital requirement estimations when you undertake your due diligence as this will affect your projected revenue estimates. Your accountant can help you with this.

A lot of these costs come down to repairing any properties and bringing plant and equipment up to operating standards.

You also have to consider the cost of wages for the staff you’ll need to run the caravan park, bearing in mind that you’ll likely need to put in around 12-14 hours a day, at least in the first year or so.

You may want to consider undertaking the following courses if you haven’t already.

Not only will it give you a better idea of what running a caravan park involves but it will put in a better position to get approved for a caravan park commercial loan:

• Certificate II (Hospitality).
• Certificate III (Hospitality).
• Certificate IV (Hospitality).
• Certificate IV (Small Business Management).
• Diploma of Hospitality Management.
• Advanced Diploma of Hospitality.

Do you qualify for a loan?

Do you need a caravan park commercial loan to buy your dream holiday park?

We can help you get approved!

Call us on 1300 889 743 or complete our free assessment form to speak with one of our commercial specialists today!.